The Limits of Opportunity

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Lecture 3

• The Limits of Opportunity

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Todays Topics

• Final conclusions about mobility in the U.S.
• Is rising inequality in America a problem?
• Is there a right amount of inequality?
• If so, what is it?
• Why does inequality persist?
• How does Americans belief in meritocracy
  influence our approach to inequality and poverty?

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Table 2. Income Mobility Transition Matrix,
1968-91
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Conclusions about U.S. Income Mobility

• There is broad agreement that income mobility in
  the U.S. is substantial and that life-time
  earnings are more evenly distributed than annual
  earnings.
• About 25 to 40 percent of the American population
  moves into a new income quintile each year.
• The rate increases with time approaching 60
  percent over a ten years
• Most people do not move very far.
• Individuals with at least a college education are
  more likely to move up than any other group.

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Conclusions about U.S. Income Mobility

• The mobility of those with little education has
  declined.
• Mobility has not changed significantly over the
  past 25 years.
• Mobility is no higher in the U.S. than in other
  developed countries
• Source Daniel McMurrer and Isabel Sawhill,
  Economic Mobility in the United States, Urban
  Institute, http//www.urban.org/publications/40672
  2.html

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Is rising inequality problematic?

• See slide show at
• http//www.inequality.org/facts.cfm
• Do you find the slide show convincing? Why or
  why not?

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Trends in Voter Turnout
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Health Insurance Coverage Race, 1987-2001
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College Enrollment by Income Quartile, Class of
1980/82 vs. Class of 1992
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M. Kelly, INEQUALITY AND CRIME The Review of
Economics and Statistics, Volume 82,?Number 4, 1
November 2000, pp. 530-539(10)

• This paper considers the relationship between
  inequality and crime using data from urban
  counties. The behavior of property and violent
  crime are quite different. Inequality has no
  effect on property crime but a strong and robust
  impact on violent crime, with an elasticity above
  0.5. By contrast, poverty and police activity
  have significant effects on property crime, but
  little on violent crime. Property crime is well
  explained by the economic theory of crime, while
  violent crime is better explained by strain and
  social disorganization theories.
• Note that this article does not describe trends
  though time.

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Is rising inequality problematic?

• Clearly some trends are correlated, but that
  doesnt necessarily imply causation.
• Causation is difficult to prove.
• Logic suggests that increasing inequality without
  an offsetting increase in mobility means that
  inequality in the short term is more likely to be
  come inequality in the long term. More people
  are likely to find themselves long term members
  of a specific income quintile.
• Sawhill identifies such a group at the bottom of
  the income distribution know as the
  underclass--the persistently poor.

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Is there a right amount of inequality?

• Less than we have now
• Incentives to work, save, and invest exceed
  levels required for growth
• We could redistribute more of the current
  economic pie without eroding growth
• We should tolerate more
• As Sawhill explained, inequality need not imply
  poverty
• A rising tide lifts all boats
• Sawhill argues that the debate should be focused
  on opportunity, not inequality.

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Why does inequality persist? For that matter,
why is poverty tolerated in the U.S.? Why should
the debate be focused on Opportunity?

• How would Sawhill answer these questions?
• Because Americans believe in that equality of
  opportunity rather than results.
• The Gallup Social Audit showed that 81 of a
  representative sample of Americans believe there
  is plenty of opportunity.
• Income inequality reflects the results of a fair
  system because it reflects differences individual
  talents, efforts and accomplishments.

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Can 81 of the population be wrong? Is there
plenty of opportunity for all Americans?

• It might be useful to rephrase this to ask what
  factors constrain opportunity?
• Sawhill might answer this by saying
• Unequal education systems
• Changing demographic patterns
• Can you add other factors?
• Unequal access to health care

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How does Americans belief in meritocracy
influence our approach to inequality and poverty?
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How does Americans belief in meritocracy
influence our approach to inequality and poverty?

• We are more willing to accept both because they
  are viewed as the result of a fair system.
• Our believe that those at the bottom of the
  income distribution must share the responsibility
  for their situation limits the amount of aid we
  provide.
• Policies that increase opportunity are preferred
  to policies that focus on the results and
  redistribute income from the haves to the
  have-nots.
• Our focus is directed toward the perceived
  obstacles to opportunity.